Friday 13 May 2011 02.00 EDT
First published on Friday 13 May 2011 02.00 EDT

In all likelihood, Errol Damelin tells me, if I were to seek a loan from his short-term credit website, Wonga.com, I should prepare to be turned down.

We have only been talking – or rather Damelin has, at great speed – for 20 minutes before the founder guesses at my creditworthiness. The heavily freckled South African entrepreneur, in dotcom regulation dress-down attire, is bursting to fight back against perceptions of his business as a predator exploiting the desperate and destitute — a "legal loan shark" as its critics have labelled it.

Despite an impressive pledge to wire short-term loans to customer accounts within 15 minutes, day or night, Damelin insists Wonga is highly selective about who it lends to. I would be likely to get a loan from a high street bank than Wonga, he judges. Less than 30% of applicants are. It helps if you have a good track record of taking out unsecured loans and repaying them on time.

An ambitious web startup that began offering loans four years ago, Wonga has become a lightning rod for criticism, Damelin suggests, because it is the most high-profile business in a growing market for so-called "payday lending". An early day motion tabled in parliament last summer accused it of helping customers into "a cycle of debt, making themselves even poorer".

A year ago the coalition government promised to ban excessive interest rates on credit and store cards and it is under pressure to extend a crackdown to payday lenders. Political attention on Wonga in particular has grown because the firm has been building itself into a household name. There has been a blizzard of advertising, including the sponsorship of free late-night travel on the London Underground on New Year's Eve and a shirt deal with Blackpool football club. Next season Scottish Premier League side Hearts will also play with Wonga.com emblazoned on their chests.

Adding to the firm's profile has been flurry of awards, which sit proudly displayed on a shelf behind Damelin. Most recently, Wonga was named digital entrepreneur of the year at the Media Guardian Innovation Awards. The business has also attracted reputable financial backers, including three of the core supporters of Facebook — Greylock, Accel and Meritech.

How much business Wonga is doing remains under wraps. Damelin says Wonga recently reached 1.5m loans and has arrears rates of less than 10%. The firm itself is fiercely debt-averse – funding almost all its loans through shareholder equity and operating profits.

"They are picking on the wrong people. We are the good guys," Damelin says of his critics at Westminster, who refuse to meet him. "Yes, we're in a space that is controversial, that is polarising. But it is an important social service. To have social mobility you have to have credit available to people where its required and where it's appropriate."

Damelin talks passionately about Wonga being "not a job but a mission". A onetime investment banker and veteran of two other successful web startups, he is already comfortably off. His motivation at Wonga, he says, is more than making money. "I like disrupting spaces. Consumer credit was a blaringly obvious space which was causing people pain. There's an oligopoly that's not innovative and yet there are technologies and data that can do it."

The Wonga boss, who came to London 12 years ago, is reluctant to talk about his life outside work. But asked if he had displayed disruptive traits earlier in life, he mentions a spell on the student representative council at Cape Town University. "It was very political. I grew up in the 1980s and was very ANC-aligned. I was very politically active," he says. Later I learn that, during the dying days of the apartheid regime, he had been involved in orchestrating civil disobedience protests.

Today Damelin will talk about little other than Wonga. He paints a picture of a typical customer on a mid-level salary: someone from the tech-savvy Facebook generation, aged between 20 and 35, who has no savings and is strapped for cash perhaps three or four times a year. The most common reason borrowers visit Wonga is a surprise bill – a boiler needs fixing, for example – and the second most frequent loan is for a treat: a ticket to Glastonbury or a Champions League football match.

And is Damelin concerned to be sending young people, already close to the edge of their credit limits, off to party at Glastonbury? With unemployment and living costs soaring, shouldn't that person be encouraged to find less expensive entertainment and repair their personal finances? "You've got to be careful not to be condescending. I tend to have the view that most people understand their situation better than outsiders."

Damelin accepts that a Wonga loan is not cheap, but likens it to the luxury and convenience of taking the occasional taxi. Detractors highlight interest charges of 4,217% APR, though Damelin, with some justification, expresses frustration at this. He is legally required to publicise this rate in Wonga publicity— which assumes compound charging over a whole year — even though he only offers loans of up to 30 days, charging simple interest of just over 1% a day, plus a fee. Borrowing £100 for 15 days, for example, costs £21.11. But even before the arrangement fee, that is still a daily interest cost which is double the Bank of England's annual base rate.

Damelin is keen to draw comparisons between the very clear cost of a Wonga loan and the often opaque charges banks impose on overdrafts. "Their version of a payday loan is an unauthorised overdraft. They get billions from it. The last number we saw was £2bn. I think it dramatically underestimates the real amount because they don't want to show people. That's what we hate."

He insists most people – 91% according to his research – come to Wonga not because they have maxed out their credit card and been turned down for a bank overdraft. They simply prefer it.

"There's a younger generation of people who tweet. They Facebook. They've just taken the world into their hands in a different kind of a way. And part of that is deciding on your own how to control your own financial future. We're part of that generation and people don't understand that much about us."